|
WASHINGTON (Reuters) -
Global growth momentum has peaked but buoyant economic and financial conditions in most developing countries should continue, the World Bank said on Wednesday.
"While growth should decline, these economies are nevertheless expected to expand by a robust and above-trend 5.7 percent in 2005," the bank said in its annual 2005 Global Development Finance report.
Led by rapid growth in China, India and Russia, developing countries easily outgrew rich countries last year, with aggregate gross domestic product rising by a record 6.6 percent, the report said.
The growth was spurred by favourable global conditions and years of domestic policy improvements, the bank noted.
But an expected slowdown in GDP growth of wealthy countries this year to about 2.5 percent, together with reduced demand for exports, should slow growth in low and middle-income countries, the World Bank said.
Still, gains by developing countries in global market share should temper the slowdown, the bank added, and one of its senior economists saw no reason to downgrade growth forecasts because of the recent highs set by oil prices.
"We see prices as entirely consistent with our forecast for the year as a whole," Andrew Burns, a senior economist at the World Bank, said in Paris, referring to a prediction that the price of a barrel of oil would average about $42 in 2005.
"There is an expectation that oil prices will remain high in the first half and ease in the second half."
U.S. crude oil prices on Monday hit record highs above $58 a barrel.
The report, however, warned the large U.S. current account deficit could trigger abrupt interest rate and disorderly exchange rate movements, causing a deeper-than-expected global slowdown, which could undercut growth in developing countries.
"Developing countries need to prepare themselves for adjustments, some of which could be sudden," said Francois Bourguignon, the World Bank's chief economist.
The U.S. deficits meant developing countries had run up larger surpluses and were able to save more in foreign reserves, the bank noted.
For most countries, squirreling away currency reserves is part of a strategy to improve creditworthiness and reduce vulnerabilities.
But the World Bank said countries with large dollar-denominated reserve holdings may face acute pressures and large potential investment losses should the U.S. dollar weaken sharply, although their dollar-denominated debt burdens may ease.
Emerging market economies are especially vulnerable to changes in interest and exchange rates because their economies and institutions are often not sophisticated enough.
"History has shown, time and again, that financial crises often take markets and policymakers by surprise," said Uri Dadush, director of the bank's development prospects group, which produced the report.
Financial markets and policy-makers often miss warning signs and overshoot, which require larger adjustments in the end, he added.
Financial flows to developing countries in 2004 reached levels unseen since the onset of the financial crises of the late 1990s, the bank said.
Net private capital flows, including debt and equity to developing countries, increased by $51 billion to $301.3 billion in 2004. Of this, net foreign direct investment totaled $165.5 billion, up by $13.7 billion in 2004.
Dadush questioned whether the strong pickup in capital flows could be sustained amid easing of growth.
Overall, the World Bank said developing economies are stronger than they were in the 1990s when they were beset by crisis, but external and domestic borrowing is still high.
"As long as conditions remain favourable, efforts to strengthen fiscal positions and take advantage of low interest rates to restructure debt should continue," the bank said.
________________________________________________
Read stories on CNN/Money's world biz page. Click here.
Read stories about jobs and economy. Click here.
|
